Extra Decimals

Ross Spur · Dec 3, 2011

Anyone have any theories about what method SBs use to quote an extra decimal on some markets? For instance, the Dow/WS/US30 is based on the YM future which moves in whole points, yet the SB price moves in tenths. Do they weight it from the Dow cash, or other indices, or the YM order book, or is it something to do with the 'fair value' calculation, or what?

From observation, it appears that the extra decimal has the effect of increasing the 'noise range', which tends to trigger stops more, although I wouldn't dream of saying this was deliberate, of course.

tomorton · Dec 3, 2011

Decimals? Can't see the point.

gle101 · Dec 3, 2011

Ross Spur said:
Anyone have any theories about what method SBs use to quote an extra decimal on some markets? For instance, the Dow/WS/US30 is based on the YM future which moves in whole points, yet the SB price moves in tenths. Do they weight it from the Dow cash, or other indices, or the YM order book, or is it something to do with the 'fair value' calculation, or what?

From observation, it appears that the extra decimal has the effect of increasing the 'noise range', which tends to trigger stops more, although I wouldn't dream of saying this was deliberate, of course.

Yes you got a point here. It is quite obvious that the extra decimals is not entirely for the benefit of the trader. The fixed spread is a problem for the SB, and I think the extra decimals is intended to even this out. Also a tiny lag is a risk for the SB so extra decimals will serve as a catch up. What exactly make up the spread is altogether not transparent, as you say, it is probably a combination of the parameters you mention. It might pay off to put this question directly to Simon at CS thread.

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Shakone · Dec 3, 2011

I don't know. But for someone like IG who have a 2 point spread on Dow, if the bid/ask in the real market was 12001/12002, then they'd probably want to have extra decimals so that they can quote 12000.5/12002.5, or else they'd have to make a choice between 12001/12003 and 12000/12002.

Then after that I suppose they just bias it a little based on their exposure.

wackypete2 · Dec 3, 2011

tomorton said:
Decimals? Can't see the point.

Don't give up your day job

Peter

kalott · Dec 4, 2011

tomorton said:
Decimals? Can't see the point.

In theory

If you trade breakouts with buystop and sellstop like big ben this an example

say you put a stop to sell ftse if under 5562 and a stop loss if over 5592

with for example IG you could sell at 5561.8 and stop loss at 5592.3 and with one point spread the loss would be 31.5

with FCXM you could sell at 5561 and stop loss at 5593 and with one point spread the loss would be 33 (but thanks to the variable spread you must use two point spread not to get stopped out on 5592) that would give a loss of 34

and if you get slippage with FXCM it would be one point and with IG decimals

in theory

tomorton · Dec 4, 2011

kalott said:
In theory

If you trade breakouts with buystop and sellstop like big ben this an example

say you put a stop to sell ftse if under 5562 and a stop loss if over 5592

with for example IG you could sell at 5561.8 and stop loss at 5592.3 and with one point spread the loss would be 31.5

with FCXM you could sell at 5561 and stop loss at 5593 and with one point spread the loss would be 33 (but thanks to the variable spread you must use two point spread not to get stopped out on 5592) that would give a loss of 34

and if you get slippage with FXCM it would be one point and with IG decimals

in theory

Classic.

Extra Decimals

Ross Spur

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tomorton

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gle101

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Shakone

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wackypete2

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kalott

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tomorton

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